Underperforming petrochemicals business casts shadow over SCC stock price

Once one of the top five stocks in the Stock Exchange of Thailand, the Siam Cement Pcl (SCC) has been on an unprecedented slump amid business challenges that have impacted both its revenue and profit.

The SCC stock price has continued to decline, falling below 200 baht, its lowest in 16 years since 2009.

The once-strong stock, and often a staple in investment portfolios due to its consistent interim and annual dividend payouts, has been hit by heavy selling pressure. The stock, which reached a peak price of 554 baht in 2015 with a market cap of 664 billion baht, recently closed at 199.50 baht on Thursday (August 8), down 0.75%, with a market cap of 241 billion baht.

The sharp drop in value has been driven by economic factors affecting SCC's business structure, which is tied to heavy industries and commodities — sectors highly susceptible to market fluctuations, thus dependent on strong or recovering economies.

Since 2019, SCC's three core businesses have struggled to recover simultaneously. The petrochemicals business, which forms a large part of the portfolio, has been particularly hard hit compared to the cement and construction products, and packaging businesses, which have shown gradual recovery.

In the second quarter, SCC reported revenue of 128.195 billion baht, a 3% increase from the same period last year, but the net profit of 3.707 billion baht, was down 54.15% year on year (YoY). The company posted revenue of 252.461 billion baht for the first half of the year, unchanged from the previous year, and a net profit of 6.132 billion baht, down 75.08%.

The company noted that "the petrochemical business continues to be impacted by weak demand" due to geopolitical tensions and a slowing global economy. Additionally, reduced supply during maintenance shutdowns by producers has kept petrochemical prices stable.

In the first half of 2024, SCG Chemicals (SCGC) recorded sales revenue of 97.867 billion baht, a 2% increase YoY, with earnings before interest, taxes, depreciation, and amortisation of 4.387 billion baht, a 48% decrease, leading to a loss of 3.107 billion baht compared to a profit of 2.097 billion baht in the previous year — a decline of 5.204 billion baht, due to reduced selling price margins.

For the remainder of 2024, the company has adjusted its revenue growth target from an expected 20% to just 10%. SCGC continues to weaken due to reduced demand, market oversupply, and unchanged high oil costs amid global market uncertainty, pressuring operations.

Surachai Pramuancharoenkit, senior director of securities analysis at Maybank Kim Eng (Thailand), attributes the stock's recent decline primarily to the petrochemical business, the largest part of SCC's portfolio, which has faced losses as global market spreads have fallen below the break-even point of $400. The situation has been exacerbated by issues in Vietnam, affecting performance since the second half of 2023 through 2024.

The company has been restructuring, cutting costs, and introducing high-value products, but these efforts will take time and are not expected to yield immediate results. Consequently, the outlook for SCC remains challenging. The current fundamental value has been adjusted to 240 baht, but further revisions will depend on third-quarter performance.